If I File For Bankruptcy, Will I Lose My GST And Child Tax Benefits?

Bankruptcy is a legal process that provides relief to individuals struggling with an overwhelming amount of debt. But the big question that often arises is, “If I file for bankruptcy, will I lose my GST and Child Tax Benefits?” This topic is of utmost importance to those considering bankruptcy, especially for families with children who rely on these benefits.

1. An Overview of Bankruptcy

Filing for bankruptcy is a significant decision that can offer a fresh start for those burdened with unmanageable debts. It allows individuals to eliminate most, if not all, of their debts, making it an appealing route for some.

Bankruptcy involves surrendering your assets to a Licensed Insolvency Trustee (LIT), who then sells them to repay your creditors. However, not all assets are lost in bankruptcy. Certain assets, known as exempt assets, are protected by law and cannot be sold to pay off debts.

2. Bankruptcy and Child Tax Benefits

Child Tax Benefits are a form of financial assistance provided by the government to help families with the cost of raising children. It’s a crucial source of income for many families.

The good news is that Child Tax Benefits are not impacted by bankruptcy. Individuals who are eligible for this benefit will continue to receive it even if they file for bankruptcy. The Trustee does not have any claim over these funds, offering some relief to families undergoing the bankruptcy process.

3. Bankruptcy and GST Credits

The Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit is a tax-free quarterly payment that helps individuals and families with low and modest incomes offset all or part of the GST or HST that they pay.

When a person files for bankruptcy, the Canada Revenue Agency (CRA) will send the GST credits directly to the Trustee. These funds are held in trust and, in some cases, a portion of the GST credits may be returned to the individual at the end of the bankruptcy.

4. The Role of a Licensed Insolvency Trustee

A Licensed Insolvency Trustee (LIT) is a federally regulated professional who provides advice and services to individuals and businesses with financial difficulties. They are the only professionals authorized to administer government-regulated insolvency proceedings such as bankruptcies and consumer proposals.

When you file for bankruptcy, your LIT will sell your assets (excluding exempt assets) and use the proceeds to repay your creditors. They will also handle all communication with your creditors, relieving you of this stress.

5. Bankruptcy Alternatives

While bankruptcy can provide individuals with a fresh start, it’s not the only solution for dealing with overwhelming debt. There are several alternatives to bankruptcy, including:

  • Consumer Proposal: This is a legally binding agreement between you and your creditors to repay a portion of your debts over a set period (up to five years).
  • Debt Consolidation: This involves combining all your debts into one loan, which can make it easier to manage your payments and potentially lower your interest rate.
  • Credit Counselling: A credit counsellor can help you develop a debt management plan and negotiate with your creditors to lower your interest rates or waive fees.

6. Life After Bankruptcy

While bankruptcy can provide relief from overwhelming debt, it also has long-term consequences. It will remain on your credit report for a number of years, which can make it harder to get credit, buy a home, or even get a job.

However, life after bankruptcy is not all doom and gloom. With time, patience, and a commitment to rebuilding your finances, you can recover from bankruptcy and live a financially stable life.

7. Understanding Consumer Proposals

A consumer proposal is an alternative to bankruptcy that allows you to make arrangements to pay a portion of your debt. It’s negotiated with your creditors and administered by a LIT.

In a consumer proposal, you agree to pay a fixed amount to your creditors over a set period (up to five years). Once all the payments are made, the remaining debt is forgiven.

8. Debt Relief Options

There are several debt relief options available to Canadians struggling with debt. In addition to bankruptcy and consumer proposals, these include:

The right solution for you will depend on your specific financial situation and goals.

9. Financial Literacy Resources

Financial literacy is crucial for managing money effectively and avoiding financial pitfalls. There are numerous resources available to help improve your financial literacy, including books, websites, and financial counselling services.

10. Conclusion

The question, “If I file for bankruptcy, will I lose my GST and Child Tax Benefits?” is a concern for many considering this route. While bankruptcy can impact your GST credits, it does not affect your Child Tax Benefits. However, bankruptcy is a significant decision with long-lasting effects, and it’s essential to consider all your options before proceeding.

Remember, there is life after debt. With careful planning and the right financial habits, you can recover from bankruptcy and regain control of your financial future.

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